Jackson Hole Recap: Grounded but not predictable

Key arguments

• Warsh's speech was unambiguously hawkish, emphasizing insufficient disinflationary progress and a readiness to raise rates if inflation does not improve.
• The Fed's reaction function has become less predictable due to Warsh's rejection of forward guidance and explicit rate paths.
• September's decision will be a close call, but Natixis leans toward another hold based on expectations of softer labor and inflation data.
• Forward guidance is seen as overstaying its welcome, increasing investor uncertainty.

Corresponding source evidence

1. That ambiguity is deliberate as Warsh rejects a mechanical Taylor rule and believes an explicit rate path would recreate the shortcomings of forward guidance. Investors therefore received a clearer assessment of the current state of play, but not the predictable reaction function many wanted. · medium_term